NCLAT allows Promoters, shareholders of corporate debtors to settle insolvency under Section 12A of IBC
National Company Law Appellate Tribunal (“NCLAT”) in the case of Shwetha Vishwanath Shirke v. The Committee of Creditors held that promoters and other shareholders of corporate debtor can settle the insolvency and file an application under Section 12A of the Insolvency and Bankruptcy Code, 2016 (“IBC”) for withdrawal of application made for corporate insolvency resolution process under Sections 7,9 or 10 of the IBC.
In the present case, the promoter of the corporate debtor filed an application to National Company Law Tribunal, Mumbai Bench (“Tribunal”) under Section 12A of the IBC which states that the National Company Law Tribunals (“NCLT”) may allow the withdrawal of application for corporate insolvency. The promoters of the appellate company filed an application along with approval from more than 90% voting share of the committee of creditors. However, in this case the Tribunal held that since Promoters are not eligible for resolution plan as per Section 29A of the IBC, they cannot file an application under Section 12A.
The Tribunal also decided that the assets of the corporate debtor were “proceeds of crime”, hence, the claims of creditors cannot be settled by disposing off such “proceeds of crime”. Proceeds of Crime is defined in the Prevention of Money Laundering Act, 2002 (“PMLA”) as any property derived or obtained directly or indirectly by any Person as a result of criminal activity.
The NCLAT relied on Swiss Ribbons judgment by the Supreme Court of India, in which it was held that the promoters are entitled to settle the insolvency matter under Section 12A and therefore can withdraw the application filed for initiation of the corporate insolvency resolution process. The NCLAT held that Section 29A of the IBC will not be applicable for consideration of application filed under Section 12A of IBC. Additionally, the NCLAT held that even if the assets of the corporate debtor were held to be “proceeds of crime”, an application of withdrawal of application filed under Section 7 of IBC cannot be rejected by the NCLT, if the promoter can satisfy the claims of creditors in their personal capacity.
While hearing an attached appeal in this matter, the NCLAT held that if the assets of the corporate debtor are held to be “proceeds of crime” then it is on the discretion of Enforcement Directorate to seize the assets in accordance with the provisions of PMLA.
Quick View
This is an important judgment by the NCLAT as it clarifies on the applicability of Section 29A of the IBC on Section 12A of the IBC. The NCLAT reiterates the position of law settled by the Supreme Court of India, that the promoters are entitled to settle the matter related to insolvency. It is now clarified that even if the assets of the corporate debtor is held to be “proceeds of crime” the promoters can still file an application under Section 12A of the IBC if they can satisfy the claims of the creditors in their personal capacity.
Disclaimer: This post has been prepared for informational purposes only. The information/or observations contained in this post does not constitute legal advice and should not be acted upon in any specific situation without seeking proper legal advice from a practicing attorney.